Cracking the Ice on Arctic Oil and Gas Exploration

Abstract:

The Arctic, abundant in hydrocarbon resources, has been considered by the oil and gas industry to be the next big play. The potential resources are expected to challenge if not trump those available in the Middle East. As the arctic regions melt due to a warming climate, the previously treacherous and inaccessible regions are suddenly enticing enough to allow exploration for the very hydrocarbon resources that are largely responsible for the warming trends, creating the so-called Great Arctic Paradox. The paradox increases pressure to choose between competing goals—reduce climate change impacts or increase energy independence and expand energy supply outside of OPEC nations. These tensions are not new, and indeed are playing out in the United States in a variety of other arenas including in debates over hydraulic fracturing and offshore oil leasing off the East Coast of the U.S. However, the fragile nature of the Arctic ecosystem and the numerous state and non-state actors in the Arctic makes these tensions even more acute.
In this Master’s Project I highlight these tensions and assess the economic and ecological feasibility and desirability of oil and gas exploration and extraction in the Arctic. To do this I review the climate science and ecology of the Arctic environment and how this is likely to be impacted by oil and gas exploration. I then examine the economic drivers of demand for Arctic energy, in particular forecasts for prices for oil and gas and for competing energy sources. Finally, I examine several models of policy options to reduce climate impacts, translate these policies into impacts on prices for oil/gas, and assess what impact different policies might have on the desirability of Arctic energy exploration. Results of the analysis suggest that while Arctic oil and gas resources are abundant, the value of the unique Arctic ecosystem, combined with lower expected prices for oil and gas and expectations of climate policies that will further decrease demand for oil and gas, make the economic case for Arctic extraction weak.